Critical Information Every Home Buyer Should Know

Critical Information Every Home Buyer Should Know

It’s no secret that rental rates across the country continue to shoot upwards, and there’s not many places that have seen rents rise faster than in Music City USA.

So why should “Nashvillians” consider buying a home instead of renting? For starters, many times, it’s actually cheaper to purchase than it is to rent.

In the majority of cases, people start out as renters because we don’t have very deep pockets and renting requires quite a bit less upfront from a financial standpoint. The downside to renting, of course, is the fact that your monthly rent is purely an expense, and not an investment. This of course means you are quite literally not ever going to have anything to show for it at the end of the day.

In paying a mortgage, a portion of the payment each month will actually reduce the amount you owe on the loan balance, assuming you have a fixed mortgage. Not only that, but there are also tax deductions which you can claim if you’re a homeowner. These deductibles can add up quick. And if those weren’t good enough reasons, in most cases real estate appreciates, or goes up in value, which means that your home may increase in value, allowing you to build equity and eventually make money when it comes time to sell your house.

So now that you’ve got an idea of why you should buy, when should you buy?

As Nashville-based Realtor Harrison Williams says, “this answer is going to vary for everybody. All of us lead different lives, come from different backgrounds, and have different financial situations. Your unique lifestyle might also be important to consider, however when considering current market conditions, it’s a great time to buy now because interest rates remain low.”

If you’ve got good credit, a steady stream of income from a job, and are just fed up with renting, it may be a good time for you to buy a home. The next piece of the puzzle would then be: how much do you need saved up to make this a reality?

When asked about how much a potential buyer can anticipate needing for a down payment, Williams says, “there are loads of different loan programs, and depending on where you’re looking to purchase, you may qualify for what’s called a FHA loan which requires as little as 3.5% of the purchase price as a down payment.” There are other options out there, as well and with so many great loan products for consumers, it’s best to speak with a mortgage professional to learn what best fits your situation.

When it comes to what to budget when buying a home, there are three big components to consider: earnest money (also called “trust money”), down payment, and closing costs.

Earnest money is what you would equate to your “skin in the game” when submitting an offer on a home. Depending on the purchase price, this amount is typically 1% of the purchase price, although nice round numbers like $500 and $1,000 are common in the Nashville market for first time buyers. You’ll have to provide that on the front end, but don’t worry – you’ll get a credit back later.

Your down payment, of course, is the percentage of the home price that you’ve got to physically pay at closing. The more you put down, the lower your payments should be. Easy enough. To get an idea of numbers that pertain to your specific scenario, consult with a professional loan officer to get a feel for what your options are.

Finally you have closing costs, which are the fees that you must also account for to be paid at the settlement. These can include items such as lender fees, appraisals, inspections, taxes, title insurance, etc.

To learn more about what is needed when purchasing your first home, contact contributor Harrison Williams of Keller Williams Realty at (615) 804-8898